Stock A is fairly priced by the market. Given that the risk free rate is 3.5%, the beta of stock A is 1.2, the beta of stock B is 0.8, the expected return on A is 6.5% and on B is 5.5% which of the following is correct given that betas of stocks A and B are correct? a. Stock B is also fairly priced b. The expected return on stock B is too high c. The expected return on stock A is too high d. The price of stock B is too high e. The price of stock A is too high. 9) Which of the following would likely have the greatest amount of systematic risk? a. A portfolio of the ordinary shares of 100 randomly selected companies b. The market portfolio c. A portfolio half invested in the market portfolio and half invested in treasury bills d. A portfolio half invested in the market portfolio and half invested in stocks with betas greater than 1.5 e. A portfolio made up entirely of treasury bills
Stock A is fairly priced by the market. Given that the risk free rate is 3.5%, the beta of stock A is 1.2, the beta of stock B is 0.8, the expected return on A is 6.5% and on B is 5.5% which of the following is correct given that betas of stocks A and B are correct? a. Stock B is also fairly priced b. The expected return on stock B is too high c. The expected return on stock A is too high d. The price of stock B is too high e. The price of stock A is too high. 9) Which of the following would likely have the greatest amount of systematic risk? a. A portfolio of the ordinary shares of 100 randomly selected companies b. The market portfolio c. A portfolio half invested in the market portfolio and half invested in treasury bills d. A portfolio half invested in the market portfolio and half invested in stocks with betas greater than 1.5 e. A portfolio made up entirely of treasury bills
Chapter8: Analysis Of Risk And Return
Section: Chapter Questions
Problem 12P
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Question
Stock A is fairly priced by the market. Given that the risk free rate is 3.5%, the beta of stock A
is 1.2, the beta of stock B is 0.8, the expected return on A is 6.5% and on B is 5.5% which of
the following is correct given that betas of stocks A and B are correct?
a. Stock B is also fairly priced
b. The expected return on stock B is too high
c. The expected return on stock A is too high
d. The price of stock B is too high
e. The price of stock A is too high.
9) Which of the following would likely have the greatest amount of systematic risk?
a. A portfolio of the ordinary shares of 100 randomly selected companies
b. The market portfolio
c. A portfolio half invested in the market portfolio and half invested in treasury bills
d. A portfolio half invested in the market portfolio and half invested in stocks with betas
greater than 1.5
e. A portfolio made up entirely of treasury bills
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